Should You Buy Gold or Bitcoin?

Studies & research

15 minutes read

Jun 21, 2021

Plastic yellow gold coin and orange bitcoin token placed on scale against the pink background to compare the similarities and differences between gold and bitcoin

The two assets have been in the news in 2020 and 2021, attracting a number of new investors. But before buying gold or bitcoin, it is important to know what differentiates these two assets.


  1. The Gold vs. Bitcoin debate
  2. A brief history of gold and Bitcoin
  3. What are the fundamental similarities between gold and Bitcoin?
  4. What are the fundamental differences between gold and Bitcoin?
  5. How both gold and Bitcoin can benefit an investment portfolio?


In recent years, the rise of Bitcoin has caught the eye of many investors, sparking a heated debate on whether Bitcoin, like gold, can act as a safe-haven asset*.

*An asset that maintains its value during periods of economic turmoil.

This debate has led to several comparisons between the two, arguing that Bitcoin could even replace gold as a store of value.

The popular narrative in this debate is that Bitcoin is stealing gold’s thunder or that crypto’s gains are gold’s losses.

But is it really true?

Before answering this question, let’s see what Bitcoin fans and gold advocates have to say when asked which asset they’d hold for the next 10 years and why.

Why should you hold gold?

“My vote would be for gold because it has thousands of years of a historical record as a store of value, has one-fifth the volatility of Bitcoin, and doesn't face the same competition risk. The day that Queen Elizabeth trades in the five pounds of gold in her crown for crypto is the day I'll shift course.” - David Rosenberg of Rosenberg Research, former Chief Economist and Strategist for Merrill Lynch Canada and Merrill Lynch in New York.

"There is a possibility that Bitcoin could one day cease to exist through hostile legislation … While Bitcoin is a more recent form of investment that is certainly receiving a lot of hype, gold has retained its value through centuries. Whether Bitcoin will offer the same level of longevity is highly questionable." - Sylvia Carrasco, CEO and founder of the gold exchange platform Goldex.

Why should you hold Bitcoin?

"Based on the trajectory of this digital gold path and use cases globally, we believe Bitcoin will be a mainstream asset class in the future. While gold has clear value and safety, the upside in Bitcoin is eye-popping if it stays on its current course over the next decade." - Daniel Ives Managing Director and Senior Equity Research Analyst at Wedbush Securities.

Bitcoin and other digital currencies can be easily traded on platforms. We have seen progressive global firms offering to receive payment in Bitcoin and advocates such as Tesla taking an active role in promoting it. This liquidity, ease of exchange, and wider use in the modern economy are some of the major differentiators. " - Pavel Matveev, CEO, Wirex.

So, when it comes to gold and Bitcoin, many tend to see it as a zero-sum game when, in fact, it is not.

In reality, gold and Bitcoin share some similarities, while being fundamentally different in function. Which is actually what makes them complementary assets in an investment portfolio. Particularly in the context of economic uncertainty and looming inflation.

Let’s dig deeper to see why.


  • Bitcoin has been three times more volatile than the NASDAQ Composite or the S&P 500, and more than four and a half times more volatile than gold.
  • Bitcoin works well in a “risk-on” environment, whereas gold tends to prefer “risk-off” situations.
  • Bitcoin’s Value-at-Risk* is five times higher than that of gold.

*VaR - a measure that shows the maximum loss expected (or worst case scenario) on an investment.


For starters, let’s quickly refresh on the origins and uses of gold and Bitcoin.

What is gold used for?

Gold has seen a wide variety of uses across millennia — back in 4000 B.C., the yellow metal was used to make decorative objects. It has come a long way since and found uses in modern technology, medicine, engineering, and aerospace.

Up until 1971, most paper currencies were backed by gold. Gold has always been viewed as a safe-haven asset and has never gone to zero in recorded history. It remains a key component in foreign reserves even after the end of the Bretton Woods system.

What is Bitcoin used for?

Bitcoin is a cryptocurrency, a type of anonymous, traceable, secure, and digital currency, designed to be used to buy products and services. However, it is still only marginally accepted by retailers as a form of money, and some countries have banned payments in cryptocurrencies altogether.

However, along with countries such as Salvador, which now recognizes Bitcoin as a legal tender, some companies, including PayPal and Xbox, are beginning to buy into the cryptocurrency’s growing influence, allowing payments and transfers in Bitcoin.

The Bitcoin network came into existence in 2009. It was designed by a person, or a group, known as Satoshi Nakamoto to facilitate online exchanges and create a means to circumvent the traditional banking system.

Among asset classes, Bitcoin has had one of the most volatile trading histories, with double-digit variation a day being a common thing.

Despite this, Bitcoin’s profitability so far is undeniable. With more than 10 years of existence, experts generally believe it is here to stay.

And as we’ve said before, some analysts and business leaders even think Bitcoin could replace gold.

But does Bitcoin have the same attributes as gold?

And does the cryptocurrency have what it takes to qualify as “gold 2.0”?


Behind the “gold 2.0” argument is the fact that gold and Bitcoin do share some key attributes that make both assets look functionally similar. On the surface, at least.

Gold and Bitcoin have limited supply

Both of these assets are available in limited quantities as their supply growth is expected to slow down to a fixed amount at some point.

According to the World Gold Council, each year, global gold mining adds about 2,500-3,000 tons to the overall above-ground gold stock, which is estimated at 201,296 tons (end-2020). And although gold production has demonstrated an upward trend recently, it is likely to level off some time.

The graph below shows the annual rate of growth for gold and Bitcoin:

graph of the annual growth of gold available above ground and mined bitcoin showing that both assets have a low supply growth with limited supply which works in favor of their price

In 2020, gold’s above-ground stocks rose at a rate of 1.7%, and that rate hasn’t changed much over the past 20 years.

As for Bitcoin, its stock has been increasing some 3% annually and is expected to slowly decline to zero growth around the year 2140.

Gold and Bitcoin are both alternatives to fiat currencies

First, let’s refresh on what fiat currencies are, exactly.

A fiat currency is a government-issued currency that is not supported by any physical commodity, like gold or silver, but rather by the government that issued it.

And while fiat currencies can only be government-issued, practically any item can be considered a currency as long as it works as a medium of exchange, a unit of account, and a store of value.

Here is how gold and bitcoin could qualify as currencies:

Medium of exchange: an item that is widely accepted in exchange for goods and services.

  • Gold was used as money in the past and can be converted to cash in almost any currency.
  • Bitcoin, meanwhile, is being increasingly integrated into various global payment systems.

Unit of account: an item that is a standard unit of measurement of the market value of goods and services.

  • Gold can be divided into smaller units and often comes in weights ranging from 1 g bars to 10 kg bars and more.
  • Bitcoin, in turn, can be broken down into a unit of cryptocurrency known as Satoshis where 100 million Satoshis make up one Bitcoin.

Store of value: an item that can retain its value over time and that investors usually rush to during economic turmoil to use as a safe haven.

  • Gold has historically played that role. For example, over the past 20 years, most of the major currencies have lost around 80% of their value compared to gold.
  • As for Bitcoin, while some believe that we are about to see its power as a store of value in the coming years, crypto skeptics argue that this is not going to happen, at least for the time being, since Bitcoin is too volatile.

So although for now, Bitcoin’s role as a store of value is still debated, the two assets share some similarities in their limited supply and in how they can be considered somewhat of an alternative to fiat currencies.

But with a closer look, and despite those similarities, the reason behind gold bugs’ and bitcoiners’ often playful opposition is simply that the yellow metal and the cryptocurrency will react very differently to some particular conditions.


The most obvious difference between the two assets is that gold is a physical product, while Bitcoin (despite often being misleadingly represented as a shiny coin) is a purely digital asset. But they also have some fundamental differences in how they react in certain situations and environments.

Here are the key ones:

Difference in risk appetite:

Bitcoin works well in a “risk-on” environment, whereas gold prefers “risk-off” situations. In risk-on conditions investors have a high-risk appetite, bidding up the prices of assets in the market. In contrast, in risk-off situations investors are more risk-averse and tend to sell their risky assets, therefore sending their prices lower while putting their funds in safer assets.

Difference in price volatility:

Over the past two years, Bitcoin has been three times more volatile than the NASDAQ Composite or the S&P 500, and almost five times more volatile than gold. And this is without taking into account Bitcoin’s most recent volatile episodes. Besides, the crypto market can sometimes be ruled by single-worded tweets: several times this year, tweets from Elon Musk have helped send Bitcoin’s price on a roller-coaster ride. In late May, the price of bitcoin plunged by almost 30% in one day on a news reports about China’s crackdown on banks’ use of cryptocurrencies.

Moreover, if we look at the Value-at-Risk* measure, on any given week over the past two years, investors had a 5% chance of losing at least $1,382 for every $10,000 invested in Bitcoin – almost five times more than the VaR for an equivalent investment in gold.

Gold, on the other hand, has been one of the most stable assets, including during the Covid-19 pandemic.

Take a look at the chart showing annualized weekly volatility of different assets in 2021. It kind of speaks for itself:

graph of the volatility of US equities including Nasdaq and S&P500 index compared to gold and bitcoin for the years 2011 to 2021 with data taken from Bloomberg and the World Gold Council

*VaR - a measure that shows the maximum loss expected (or worst case scenario) on an investment.

Difference in competition risk:

Gold is almost an asset class in itself. Other precious metals are seen as more complementary to gold than in competition with it: it is commonly agreed that gold is an integral part of a well-diversified portfolio.

Bitcoin, however, is only one of many existing and competing cryptocurrencies. While it is considered by most to be the “original” cryptocurrency, it has been increasingly challenged by up-and-coming younger siblings. Like Ethereum, for example, which is already the second-largest cryptocurrency by market capitalization. And while still relatively young, Ethereum is often seen as the most likely candidate to surpass Bitcoin in the future.

Difference in market correlation*:

*A market correlation is a statistical measure that determines how assets move in relation to each other.

In general, the gold to stock correlation is inversely proportional. This means that when the stock market falls, the gold price goes up. Historically, it has been observed that gold performs well when the stock market is most pessimistic.

But also, gold is among those rare assets that work well in correlation with economic expansion. This means that when the economy is doing well and retail investors and businesses are investing, they will tend to diversify their growing portfolios with safe-haven assets such as gold.

Bitcoin’s correlation to traditional asset classes has been historically low, although it has started to rise lately.

To sum up, Bitcoin and gold tend to show rather different behaviors when it comes to risk appetite, price volatility, competition risk, and market correlation. This is why we believe that, at their core, gold and Bitcoin are very different assets.

Which is a good thing.

Because in that sense they can act as complementary assets in an investment portfolio.

Finally, let’s see why!


For anyone, beginner to expert, who sees himself as an investor there is one key element to always have in mind: portfolio diversification.

When investing, a common mistake is to rely too heavily on an asset of choice, be it stocks, bonds, savings, crypto, etc. Because, when the price of this asset tumbles, it could risk bringing down the entire portfolio with it. Therefore, diversifying one’s portfolio is a way for investors to protect themselves from such a risk.

By investing in a variety of assets like gold and Bitcoin, which as we’ve seen will behave differently to various market or economic events, investors significantly improve their chances that the decrease in the price of one asset can be counterbalanced by a possible increase in the other asset’s price.

For example, when signs of inflation arise, educated investors will tend to diversify their portfolios with gold, which, as we know, works as a hedge against inflation.

And the same goes for Bitcoin. Due to its volatility, investing in Bitcoin can result in large gains or rapid and severe losses. One way to protect oneself from such risk would be by hedging this riskier investment with a more stable and safe asset like gold.


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